Property Control Changes

The Issue:

The recent amendments to the Act have been
met by sharp criticism by the South African
legal fraternity. The amendments fly in the face
principles which are fundamental to the South
African law of trusts and are the obligations
imposed are highly burdensome on trustees.
The amendments will in all likely hood face
legal challenges in our courts.

In this month’s LawSroll issue, we delve into
the terms “beneficial owner” and “accountable
institutions” and what obligations will be
imposed by the recent amendments to the Act,
read with the Draft Regulations Relating to
Beneficial Ownership Registers and Records
of Details of Accountable Institutions.

Introduction

The General Laws (Anti Money
Laundering and Combating
Terrorism Funding) Amendment Act
was assented to by the President in
December 2022. This was part of
South Africa’s efforts to combat the
country’s grey listing status. These
amendments introduce a new
definition of a ‘beneficial owner’ into
the Trust Property Control Act No. 57
of 1988 (“the Act”), as well as
obligations on trustees to maintain
registers of beneficial ownership and
to record details of accountable
institutions.

1. Who is a “beneficial owner”?

The amendments now have the effect that a
“beneficial owner” in relation to a trust means:

• A natural person who directly or indirectly ultimately owns the relevant trust property(this would include a nominee-principal relationship as described above, as well as beneficiaries of a so-called “bewind”trust).
• A natural person who exercises effective control of the administration of the trust arrangements that are established pursuant to the trust deed.
• Each founder of the trust (or if the founder is a legal person or someone acting on behalf of a partnership or in terms of another trust, the natural person who directly or indirectly ultimately owns or exercises effective control over that legal person, partnership or trust).
• Each beneficiary named in the trust deed (or if the beneficiary is a legal person, a partnership or person acting on behalf of a partnership or pursuant to another trust, the natural person who directly or indirectly ultimately owns or exercises effective control of that legal person, partnership or trust).

2. What are the duties of trustees in relation to the keeping a register of “beneficial ownership” and what details must be recorded?

In terms of Section 11A of the Act, a trustee must:

• Establish and record the beneficial ownership of the trust.
• Keep a record of the prescribed information relating to the beneficial owners of the trust.
• Lodge a register of the prescribed information on the beneficial owners of the trust with the Master’s Office.
• Ensure that the prescribed information above is kept up to date.

When maintaining the register of beneficial ownership, the prescribed information to be recorded is:

• the full names;
• date of birth;
• nationality;
• an official identification document number, indicating the type of document and the country of issue;
• residential address;
• if different from residential address, the beneficial owner’s address for service of notices;
• other means of contact;
• the grounds on which the person is a beneficial owner of the trust;
• the date on which the person became a beneficial owner of the trust; and
• where applicable, the date on which the person ceased to be a beneficial owner of the trust.

A trustee must also retain a certified copy of an official identification document of each identified beneficial owner of the trust

3. What is an “accountable institution”?

Currently, section 10 of the Act requires that a trustee who receives money must deposit it in a separate trust account at a bank. This obligation is generally discharged by the trust itself opening a bank account.

An additional provision has been added that a trustee must disclose his or her position as trustee to an “accountable institution” with which the trustee engages, and a trustee must make it known to the accountable institution that the transaction or business relationship relates to trust property. In other words, it must be clear that this person is acting in a representative capacity and not in a personal capacity when having these dealings.

An “accountable institution” is defined by reference to the Financial Intelligence Centre Act (Fica) and includes banks, life insurers, legal practitioners, stockbrokers, estate agents, dealers in foreign exchange, financial services providers, and so on, being those that require persons dealing with them to be “Fica-compliant”.

4. What are the duties of trustees in relation to the keeping a register of “accountable institutions” and what details must be
recorded?

Section 11(1)(e) of the Act prescribes that a trustee shall record the prescribed details relating to accountable institutions which the trustee uses as agents to perform any of the trustee’s functions relating to trust property, and from which the trustee obtains any services in respect of the trustee’s functions relating to trust property. The term “accountable institution” is defined as a person or organization referred to in Schedule 1 of the FIC Act that carries out business of any entity listed information to be recorded is:

• The name and identity number/registration number of the accountable institution;
• What functions or services the accountable institution performs for the trustee;
• If there is a single transaction with an accountable institution, the date thereof; and
• If the trustee entered into a business relationship as defined in Fica with an accountable institution, the date thereof.

5. What are the effects of non-compliance?

A trustee who fails to comply with the above obligations will have committed an offence and on conviction can be liable to a fine not exceeding R10 million, or imprisonment not five years, or both.

When are these
amendments effective?

The obligations on the trustee to maintain the register of beneficial owners and record of accountable institutions is effective as from 1 April 2023. It is however noted that no date has been prescribed for submission of the information on the beneficial owners to the Master’s Office – that will only be effective from a date to be determined by the President by proclamation in the Gazette.